Author Topic: buy bank stocks on the dip  (Read 50825 times)

chasesfish

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Re: buy bank stocks on the dip
« Reply #100 on: March 21, 2023, 02:56:39 PM »
@Bicycle_B - That was incredibly well written...

But as someone who was at a top 10 bank and close enough to the executives in that bank, I think Halon's Razor is more likely.

I believe Napoleon is credited for saying "Never ascribe to malice that which is adequately explained by incompetence"

These people thought they were running a tech company, not a bank.

bwall

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Re: buy bank stocks on the dip
« Reply #101 on: March 22, 2023, 07:08:56 AM »
These people thought they were running a tech company, not a bank.

It's easy to confuse your customers for yourself.

Walk into any independent high-end auto dealership and there's a good chance that the salespeople are arrogant and with an accompanying horrible attitude. They're exchanging the exclusivity of their product (and clientele) with themselves.

I could easily see it being the same thing at SVB. Working with startups and tech companies for, well, forever, and then at some point they believe the rules of tech companies apply to them as well instead of the rules of banking.

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Re: buy bank stocks on the dip
« Reply #102 on: March 22, 2023, 12:13:03 PM »
All right, explain it to me.

PACW is NOT doing a share issue to raise equity (because it doesn't need to?) - so no dilution... stock falls.

FRC prefs down quite a bit, but FRC itself not down much... if FRC is safe, aren't the prefs even more safe?

Considering buying some more FRC prefs (only have a very few at the moment), but wondering if I'm missing something?

chasesfish

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Re: buy bank stocks on the dip
« Reply #103 on: March 22, 2023, 12:41:35 PM »
All right, explain it to me.

PACW is NOT doing a share issue to raise equity (because it doesn't need to?) - so no dilution... stock falls.

FRC prefs down quite a bit, but FRC itself not down much... if FRC is safe, aren't the prefs even more safe?

Considering buying some more FRC prefs (only have a very few at the moment), but wondering if I'm missing something?

More sellers than buyers?

Financial stocks all down across the board.   If Bank of America is down, most are going to be down.   

I'm long the FRC preferred stocks as well.

reeshau

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Re: buy bank stocks on the dip
« Reply #104 on: March 22, 2023, 02:54:23 PM »
All right, explain it to me.

PACW is NOT doing a share issue to raise equity (because it doesn't need to?) - so no dilution... stock falls.


PACW was *considering* a capital raise, which is some indication they were concerned they have enough capital.  I.e. they are that much closer to the edge of insolvency.

Mr Mark

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Re: buy bank stocks on the dip
« Reply #105 on: March 22, 2023, 11:10:41 PM »

FRC prefs down quite a bit, but FRC itself not down much... if FRC is safe, aren't the prefs even more safe?

Considering buying some more FRC prefs (only have a very few at the moment), but wondering if I'm missing something?

The prefs only pay if they want to. They can stop the dividend at any time, for any reason. And, they are non-compounding, so you don't even get a promise to pay the missed dividend. and if they wanted to pay, they are also callable.

chasesfish

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Re: buy bank stocks on the dip
« Reply #106 on: March 23, 2023, 09:03:31 AM »
Callable at $25/share :)

ChpBstrd

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Re: buy bank stocks on the dip
« Reply #107 on: March 23, 2023, 01:55:33 PM »
FRC-I now has a yield of 14.69%. Of course, that's past payments / current price, not a guarantee about the future.

The cause appears to be a downgrade by Fitch into junk bond territory. The bonds were yielding only 8.5% last time I checked. Of course, just like during the GFC, the ratings agencies are weeks behind on telling us what we already know.

Banks are paying around 5% to borrow from the Fed's lending facility, which may be why Fitch noted that "FRC is currently operating at a net loss that is not sustainable over the longer term absent a balance sheet restructuring." When your ROA is 1% or less, you can't buy bank run insurance at a cost of 5% for long.


chasesfish

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Re: buy bank stocks on the dip
« Reply #108 on: March 23, 2023, 02:49:07 PM »
It's not been a good day and a half for FRC.   The rate hike was not what was prescribed.

The prefs are still a binary bet, fail and it's zero, a take under by another bank, they perform.

The most interested discussion I heard was about the eight large banks that deposited with them converting that money into equity.   That would make *a lot of sense*.    The Big 4 are just too large to swallow them and the most likely of the next three (TFC) has it's own bond portfolio issues.   

Stabilize the bank now, wait a few years, then get paid out with a market merger.   The deposit franchise and wealth business are worth a good bit.   It's basically what TARP did but without a giant facility from the treasury.   The government made good money on TARP and a consortium of large banks could probably do the same.

Maybe it makes too much sense to work.   I'd like to buy more FRC-N, but I'm in with about all my profits from earlier trades, I'd rather not incur a net loss from all of this so I'll hold on with my $8k invested.

bwall

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Re: buy bank stocks on the dip
« Reply #109 on: March 23, 2023, 05:17:39 PM »
It's not been a good day and a half for FRC.   The rate hike was not what was prescribed.

The prefs are still a binary bet, fail and it's zero, a take under by another bank, they perform.


The most interested discussion I heard was about the eight large banks that deposited with them converting that money into equity.   That would make *a lot of sense*.    The Big 4 are just too large to swallow them and the most likely of the next three (TFC) has it's own bond portfolio issues.   

Stabilize the bank now, wait a few years, then get paid out with a market merger.   The deposit franchise and wealth business are worth a good bit.   It's basically what TARP did but without a giant facility from the treasury.   The government made good money on TARP and a consortium of large banks could probably do the same.

Maybe it makes too much sense to work.   I'd like to buy more FRC-N, but I'm in with about all my profits from earlier trades, I'd rather not incur a net loss from all of this so I'll hold on with my $8k invested.

I thought that preferred stock would survive a takeover. Common stock ..... not so much. Thank you for confirming.

No way that FRC goes under. The Fed/Treasury has drawn a line in the sand in order to stop the bank run, and FRC is the battleground. When the dust settles, FRC will still be standing in some form or fashion, imho. 

I'm out of FRC, took a loss on the last trade. All told I walked away with $1000, better than losing $1000, though.

reeshau

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Re: buy bank stocks on the dip
« Reply #110 on: March 23, 2023, 06:07:12 PM »
During Chair Powell’s press conference after the FOMC meeting, he was asked if there were other banks that were subject to Matters Requiring Attention or Matters Requiring Immediate Attention. After initially saying he didn’t know how many, he characterized them as “…serious, those are serious regulatory…particularly Immediate Attention. I guess there were 6 of them.”

That happens to match the number of banks Moody's downgraded or put on credit watch.  But I have not seen any confirmation of what 6 banks received the MRIA notices.

RobertFromTX

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Re: buy bank stocks on the dip
« Reply #111 on: March 23, 2023, 09:23:34 PM »
During Chair Powell’s press conference after the FOMC meeting, he was asked if there were other banks that were subject to Matters Requiring Attention or Matters Requiring Immediate Attention. After initially saying he didn’t know how many, he characterized them as “…serious, those are serious regulatory…particularly Immediate Attention. I guess there were 6 of them.”

That happens to match the number of banks Moody's downgraded or put on credit watch.  But I have not seen any confirmation of what 6 banks received the MRIA notices.

You can get an MRA for non-financial things... like BSA/AML compliance... or if 1 loan doesn't have the right amount of Flood Insurance coverage. The correct answer for JP is " I don't know" because at any given time there's a lot of MRA's out on banks across the country.

reeshau

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Re: buy bank stocks on the dip
« Reply #112 on: March 24, 2023, 05:52:14 AM »
During Chair Powell’s press conference after the FOMC meeting, he was asked if there were other banks that were subject to Matters Requiring Attention or Matters Requiring Immediate Attention. After initially saying he didn’t know how many, he characterized them as “…serious, those are serious regulatory…particularly Immediate Attention. I guess there were 6 of them.”

That happens to match the number of banks Moody's downgraded or put on credit watch.  But I have not seen any confirmation of what 6 banks received the MRIA notices.

You can get an MRA for non-financial things... like BSA/AML compliance... or if 1 loan doesn't have the right amount of Flood Insurance coverage. The correct answer for JP is " I don't know" because at any given time there's a lot of MRA's out on banks across the country.
The 6 were MRIA's.  I don't know what the boundary is, but the more serious kind.

For errors that small, I would presume there are more than 6 MRA's throughout the country.  If the banking system were that precise, we wouldn't be having to clean up periodic messes.

"MRIAs arising from an examination, inspection, or any other supervisory activity are matters of significant importance and urgency that the Federal Reserve requires banking organizations to address immediately and include: (1) matters that have the potential to pose significant risk to the safety and soundness of the banking organization; (2) matters that represent significant noncompliance with applicable laws or regulations; (3) repeat criticisms that have escalated in importance due to insufficient attention or inaction by the banking organization; and (4) in the case of consumer compliance examinations, matters that have the potential to cause significant consumer harm."
« Last Edit: March 24, 2023, 05:58:00 AM by reeshau »

ChpBstrd

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Re: buy bank stocks on the dip
« Reply #113 on: March 24, 2023, 10:50:44 AM »
Janet Yellen has convened an unscheduled (read: emergency) meeting today of the Financial Stability Oversight Council, which includes the FDIC, SEC, Federal Reserve, and other agencies.

We cannot know the agenda, but there's a chance it's an FDIC takeover of FRC. I.e. all of FRC's equity could be gone on Monday. From $12.56 to zero.

I purchased an ITM put option expiring next Friday. If FRC isn't in FDIC custodianship by Monday, I'll sell for about a $10 loss in time value, plus/minus any delta. If the stock is zero on Monday I'll earn 60.8% return.

« Last Edit: March 24, 2023, 10:55:35 AM by ChpBstrd »

chasesfish

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Re: buy bank stocks on the dip
« Reply #114 on: March 24, 2023, 12:54:50 PM »
I've tried to buy a short today on FRC as insurance for my prefs.  No luck yet, may need to buy a put.

Hopefully they took advantage of the 3.2% 5yrT to raise some cash and lock in some of the (recovered) value in their securities.
« Last Edit: March 24, 2023, 12:57:12 PM by chasesfish »

daverobev

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Re: buy bank stocks on the dip
« Reply #115 on: March 24, 2023, 01:11:57 PM »
Janet Yellen has convened an unscheduled (read: emergency) meeting today of the Financial Stability Oversight Council, which includes the FDIC, SEC, Federal Reserve, and other agencies.

We cannot know the agenda, but there's a chance it's an FDIC takeover of FRC. I.e. all of FRC's equity could be gone on Monday. From $12.56 to zero.

I purchased an ITM put option expiring next Friday. If FRC isn't in FDIC custodianship by Monday, I'll sell for about a $10 loss in time value, plus/minus any delta. If the stock is zero on Monday I'll earn 60.8% return.

I thought I read something about... not being able to exercise options once a stock was delisted? Maybe that was with Calls?

My head struggles with these a bit, looking at my brokerage I can see it's going to cost me $3.30 or so to buy a FRC Mar 31 12.5 P. So then if it goes to zero I would get about $920, worst case I lose $330.

Edit - so, I bought a 7 P instead of a 12.5 P, only cost $1.1 and $5.95 max. That seems a better idea (ie, goes to zero - I get $595, worst case I lose $110.. if I bought 3 of those I would get more protection than the 12.5P, but I guess that I will get less back on Monday if I sell..?).

Is this a good learning experience for me, or should I just.. not.

Edit 2 - ok, I bought 3:

Mar 31 7 P for about $1
Mar 31 5.5 P for about $0.65
Mar 31 3.5 P for about $0.25

So in total this has cost me $190 but IF FRC goes to zero I get 700 + 550 + 350 = $1600, which is about what my FRC-PJs are currently worth.

Seems to me that buying the low low puts are a lot cheaper insurance.

Teach me, senpai?
« Last Edit: March 24, 2023, 01:47:32 PM by daverobev »

ChpBstrd

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Re: buy bank stocks on the dip
« Reply #116 on: March 24, 2023, 09:48:51 PM »
Janet Yellen has convened an unscheduled (read: emergency) meeting today of the Financial Stability Oversight Council, which includes the FDIC, SEC, Federal Reserve, and other agencies.

We cannot know the agenda, but there's a chance it's an FDIC takeover of FRC. I.e. all of FRC's equity could be gone on Monday. From $12.56 to zero.

I purchased an ITM put option expiring next Friday. If FRC isn't in FDIC custodianship by Monday, I'll sell for about a $10 loss in time value, plus/minus any delta. If the stock is zero on Monday I'll earn 60.8% return.

I thought I read something about... not being able to exercise options once a stock was delisted? Maybe that was with Calls?

My head struggles with these a bit, looking at my brokerage I can see it's going to cost me $3.30 or so to buy a FRC Mar 31 12.5 P. So then if it goes to zero I would get about $920, worst case I lose $330.

Edit - so, I bought a 7 P instead of a 12.5 P, only cost $1.1 and $5.95 max. That seems a better idea (ie, goes to zero - I get $595, worst case I lose $110.. if I bought 3 of those I would get more protection than the 12.5P, but I guess that I will get less back on Monday if I sell..?).

Is this a good learning experience for me, or should I just.. not.

Edit 2 - ok, I bought 3:

Mar 31 7 P for about $1
Mar 31 5.5 P for about $0.65
Mar 31 3.5 P for about $0.25

So in total this has cost me $190 but IF FRC goes to zero I get 700 + 550 + 350 = $1600, which is about what my FRC-PJs are currently worth.

Seems to me that buying the low low puts are a lot cheaper insurance.

Teach me, senpai?

Now that it’s in front of me I like your deal better than mine.

My focus was on minimizing time decay, which is why I went far ITM. I’m discounting the possibility of a big upward move in FRC before Monday morning, when I might be selling my put. The trade off is having a lot more cash tied up in the put, being more exposed to violent upward moves in the stock, and earning a lower percentage return. But I also won’t lose much if I’m wrong and the stock is sideways on Mon morning.

As a hedging strategy I think your approach is on track but I don’t think FRC could possibly be out of the woods in one week. You’ll have to find a cheaper way to hedge for the next few months.

daverobev

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Re: buy bank stocks on the dip
« Reply #117 on: March 25, 2023, 05:52:14 AM »
I was mostly scared of them being wiped out this weekend!! If I was smarter I would just have bought say 5x the 3.5s

Any thoughts on FRC or Pacwest bonds? FRC at about 50% discount.

daverobev

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Re: buy bank stocks on the dip
« Reply #118 on: March 25, 2023, 08:53:53 AM »
https://finance.yahoo.com/news/much-longer-america-regional-banks-105741683.html

Interesting. Zombie apocalypse, here we come? Will history repeat?

chasesfish

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Re: buy bank stocks on the dip
« Reply #119 on: March 25, 2023, 02:56:51 PM »
@daverobev

https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/community-banks-deposit-bases-hold-steady-seen-as-safe-haven-74882909

We won't have all the data on bank inflows / outflows until quarter end, but find this early information interesting. 

I don't think this is a Zombie bank issue.   There's two types of banks being whacked by this cycle:

California Banks (+ Signature):   California banks received massive deposit inflows from the tech boom and had tepid loan demand for a number of reasons, but not limited to a concentration in the technology issue and prolonged "main street" business shut downs.

Poor Lenders:   Banks generally loan out most of their deposits.  85% to 100% loan to deposit ratios are common.   The ones who are bad or lazy at lending gathered a bunch of deposits then put the assets in a low yield bond book.  Here's an article about Republic First in Philadelphia, stuck in Zombie mode because they didn't loan out their deposits. 

I'm moving into the camp of these being outliers vs. the everyday bank.   It is tightening lending everywhere, which has it's own consequences.

EscapeVelocity2020

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Re: buy bank stocks on the dip
« Reply #120 on: March 25, 2023, 04:03:19 PM »
Not sure where I heard it (CNBC?), but the speculation is that corporate real estate is the next boogeyman.  Rising rates have made it impossible to sell or refinance money losing deals.  If payments stop, banks could get stuck with collateral that needs to be significantly marked down...  All the easy money prior to the pandemic lead to overbuilding and the 'back to work' trend has not been strong enough to make the leases profitable.  If we get increases in layoffs and recession, it could turbocharge an already bad situation. 

Not sure how to track any of it though, not my area of expertise. 

Michael in ABQ

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Re: buy bank stocks on the dip
« Reply #121 on: March 25, 2023, 05:03:36 PM »
Not sure where I heard it (CNBC?), but the speculation is that corporate real estate is the next boogeyman.  Rising rates have made it impossible to sell or refinance money losing deals.  If payments stop, banks could get stuck with collateral that needs to be significantly marked down...  All the easy money prior to the pandemic lead to overbuilding and the 'back to work' trend has not been strong enough to make the leases profitable.  If we get increases in layoffs and recession, it could turbocharge an already bad situation. 

Not sure how to track any of it though, not my area of expertise.

I would not want to own commercial real estate with debt on it right now. Industrial is doing well but office and retail are still hurting from the systemic shift to remote work and ecommerce. Most commercial real estate loans have 20–30-year amortization but the terms are only 5 to 7 years. So, an office building that was refinanced in 2019 when things were going well may be looking forward to 2024 and realize there's no way they can survive if vacancy is up, operating expenses are up, cost of capital is up, and rents and demand are down.

Here in Albuquerque, it seems like most of the crummy retail spaces have been filled with Marijuana shops but in the end only so many of those can survive. There's actually quite a bit of construction going on which is always a sign that we're past the market peak. All the projects that got the green light when things were good are just now getting built as things start to deteriorate. But it's too late to stop as the developers will face an even larger loss than if they just finish the project and accept a lower lease rate or longer period to lease up.

reeshau

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Re: buy bank stocks on the dip
« Reply #122 on: March 25, 2023, 08:24:09 PM »
The Wall Street Journal just declared:

Work-From-Home Era Ends for Millions of Americans
Share of businesses with workers on-site most of the time neared prepandemic levels in 2022, Labor Department finds

However, all the data in the article compare current levels of remote work to November 2021.  It is down from that level.

If the headline is to be believed, that could help things.  But to what degree work has even migrated from city centers to second-tier cities or suburbs could also put accounts at risk, even if the average numbers look good.

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Re: buy bank stocks on the dip
« Reply #123 on: March 26, 2023, 03:43:12 AM »
I've tried to buy a short today on FRC as insurance for my prefs.  No luck yet, may need to buy a put.
Put options on $FRC stock range from 43% to 53% of time value.  For put options, a -43% to -53% drop in $FRC stock price is merely breakeven.  For example, the 2024 Jan puts at $12.50 strike cost about $6.60/sh, which means a drop to $5.90/sh is breakeven, and the investment almost doubles if $FRC stock gets wiped out.  If the price doesn't change before expiration, the money used to buy put options is a total loss.  The market, roughly speaking, prices this as a coin flip.
https://finance.yahoo.com/quote/FRC/options?p=FRC

chasesfish

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Re: buy bank stocks on the dip
« Reply #124 on: March 26, 2023, 04:14:31 AM »
The Commercial Real Estate question...

I broker a few debt deals a year on commercial real estate and am still involved in this industry.   I think it's mostly more of a rate problem then a performance problem.

The office properties that are struggling are 3+ story buildings in central business districts and large city suburbs.   Most of this financing is not in the banking sector, but in LifeCos and the CMBS market.   Retail(ish) office isn't bad, was looking at a deal in Atlanta for two story suburban office and occupancy was running low 80% range.   That'll suck for the value, but we aren't talking apocalypse for banking. 

There's some bubbly stuff on Apartments, specifically in the bridge lending space, but a sub 4% treasury rate works a lot of that stuff out since Fannie / Freddie will finance those properties at 1.50% above the US Treasury rate.   Some of the residential mortgage REITs like Arbor may fail, they did a bunch of bridge lending as a pipeline for permanent lending.

I think rates hurt the syndication bubble the most.   So many thing deals were done that can't handle a 2% increase in the capitalization rate.   Bank underwriting was fairly disciplined, so people went out and raise 30%+ in equity on deals from retail investors that just wanted to "get in on the action".   The Bigger Pockets Podcast Guy (Brandon) is making a fortune buying low cap rate apartments with other people's money and charging seven figure acquisition fees.   The "loss" on many of these deals may look like an illiquid 3-4% return in a world where yields are much higher.

EscapeVelocity2020

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Re: buy bank stocks on the dip
« Reply #125 on: March 26, 2023, 06:41:02 AM »
Thanks for the replies.  That's the problem with watching a CNBC segment on something I only know a little about.  They really lean in to the 'better watch this space, something is about to unfold' without giving the viewer a good way to go about it.  Residential real estate has had a wild ride lately (property tax inflation, bidding wars, and now higher rates causing people to rethink selling and losing their sub-3% mortgage rate), so it seemed plausible that something bad could be going on with commercial...

chasesfish

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Re: buy bank stocks on the dip
« Reply #126 on: March 26, 2023, 08:16:35 AM »
Thanks for the replies.  That's the problem with watching a CNBC segment on something I only know a little about.  They really lean in to the 'better watch this space, something is about to unfold' without giving the viewer a good way to go about it.  Residential real estate has had a wild ride lately (property tax inflation, bidding wars, and now higher rates causing people to rethink selling and losing their sub-3% mortgage rate), so it seemed plausible that something bad could be going on with commercial...

The difference between the 1990 CRE bust and today is there's a lot more equity in the capital structure.  Remember the 1980s were the days of junk bond 100% financing.

There may be some pain in the banking sector, but cheap retail money chasing private real estate funds / syndications will take the bulk of the impact.   I don't think we're there yet, there's still a ton of liquidity / "dry powder" in the system that wants to absorb deals.

The beatings will continue until the euphoria is gone.

ChpBstrd

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Re: buy bank stocks on the dip
« Reply #127 on: March 27, 2023, 02:46:49 PM »
I'm attracted to banks' low valuations, but repulsed by where we are in the economic cycle. Defaults are going up from here, against the backdrop of an asset base devalued by 475 basis points of interest rate hikes in 13 months. If lots of people start losing their jobs later this year, the level of deposits could fall, which from the bank's perspective is similar to a wave of demands for cash. That leads to more recognition of losses, which leads to worse ratios, which leads to the need for banks to pay ~5% interest to borrow from the Fed.

The Federal emergency loan program should eliminate the risk of further bank runs. I think it will, anyway. Yet I don't think most banks have positive equity right now, except for the fictitious values of "held to maturity" assets on their balance sheets. When banks are typically leveraged 15:1 or 20:1 or so, it doesn't take a large loss to flip equity negative.

The case for buying banks (or insurance companies, or mREITs) right now is the expectation that when things turn around, they'll have solid earnings and re-flation of their asset base due to falling interest rates. The conundrum for bank bulls is how could we possibly get falling interest rates without the kind of recession that will drive up delinquencies and drive down deposits? It seems like the most unlikely combination of interest rate outcomes and economic outcomes is the one where the economy does well AND interest rates fall. All 3 other possibilities on that grid are bad for banks.

Even then, let's look at the happiest scenario - where rates fall and the economy does well (i.e. mild & short recession or no recession). I think it's implausible to expect the FFR to return to a 0.25% upper bound, but we might go from today's 5% to, let's say, 3% in an uber-optimistic view. For a bank that held an average duration of 8 years, these rate cuts would amount to a roughly 14% increase in the value of assets held across that timespan.

Of course an investor could get that return by investing in treasuries directly, rather than via bank shares or bonds, and avoid the risk of rising defaults. The reason to buy banks is that you'd get this tailwind PLUS the discounted future earnings of the bank (discounted at a lower rate too!). So when we pay for bank equity right now, what we're actually paying for is the option value of the bank in the soft landing scenario. In any other scenario, share prices and fundamentals will be cheaper in the future and today's deal is a value trap.

The more likely scenarios involve higher default rates for cars, mortgages, and corporate bonds and leveraged loans. Default rates are already increasing in some of these areas.

Bank stocks could be seen as a leveraged option on treasury rates going down, but that would be an over-simplification because defaults will wipe out much of their value in most scenarios where rates go down.

Bulls are reasoning that most banks will survive the next recession. Regardless of which scenario unfolds, the question is will they become stuck in a zombie state, unable to make risky loans, all crowding into the same handful of safe haven assets with minimal returns, and waiting years for old "held to maturity" bonds to mature off their books? The banks which dilute their stockholders with new equity offerings might be the only ones to escape such a cycle. 

bwall

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Re: buy bank stocks on the dip
« Reply #128 on: March 28, 2023, 07:28:15 AM »
I'm attracted to banks' low valuations, but repulsed by where we are in the economic cycle. Defaults are going up from here, against the backdrop of an asset base devalued by 475 basis points of interest rate hikes in 13 months. If lots of people start losing their jobs later this year, the level of deposits could fall, which from the bank's perspective is similar to a wave of demands for cash. That leads to more recognition of losses, which leads to worse ratios, which leads to the need for banks to pay ~5% interest to borrow from the Fed.

The Federal emergency loan program should eliminate the risk of further bank runs. I think it will, anyway. Yet I don't think most banks have positive equity right now, except for the fictitious values of "held to maturity" assets on their balance sheets. When banks are typically leveraged 15:1 or 20:1 or so, it doesn't take a large loss to flip equity negative.

The case for buying banks (or insurance companies, or mREITs) right now is the expectation that when things turn around, they'll have solid earnings and re-flation of their asset base due to falling interest rates. The conundrum for bank bulls is how could we possibly get falling interest rates without the kind of recession that will drive up delinquencies and drive down deposits? It seems like the most unlikely combination of interest rate outcomes and economic outcomes is the one where the economy does well AND interest rates fall. All 3 other possibilities on that grid are bad for banks.

Even then, let's look at the happiest scenario - where rates fall and the economy does well (i.e. mild & short recession or no recession). I think it's implausible to expect the FFR to return to a 0.25% upper bound, but we might go from today's 5% to, let's say, 3% in an uber-optimistic view. For a bank that held an average duration of 8 years, these rate cuts would amount to a roughly 14% increase in the value of assets held across that timespan.

Of course an investor could get that return by investing in treasuries directly, rather than via bank shares or bonds, and avoid the risk of rising defaults. The reason to buy banks is that you'd get this tailwind PLUS the discounted future earnings of the bank (discounted at a lower rate too!). So when we pay for bank equity right now, what we're actually paying for is the option value of the bank in the soft landing scenario. In any other scenario, share prices and fundamentals will be cheaper in the future and today's deal is a value trap.

The more likely scenarios involve higher default rates for cars, mortgages, and corporate bonds and leveraged loans. Default rates are already increasing in some of these areas.

Bank stocks could be seen as a leveraged option on treasury rates going down, but that would be an over-simplification because defaults will wipe out much of their value in most scenarios where rates go down.

Bulls are reasoning that most banks will survive the next recession. Regardless of which scenario unfolds, the question is will they become stuck in a zombie state, unable to make risky loans, all crowding into the same handful of safe haven assets with minimal returns, and waiting years for old "held to maturity" bonds to mature off their books? The banks which dilute their stockholders with new equity offerings might be the only ones to escape such a cycle. 

Aren't bank stocks supposed to do well in a rising interest rate environment? Increased net interest margin and all that.

I understand that 'this time is different' and the current problems occurred precisely because of rising interest rates, but normally shouldn't banks do well in a rising interest rate environment? Therefore, shouldn't banks who managed bond maturity risk properly still do well?

EscapeVelocity2020

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Re: buy bank stocks on the dip
« Reply #129 on: March 28, 2023, 07:55:08 AM »
Not to rub salt in any wounds, but what are people doing now?  FRC didn't go to zero, so is it time to exit or a good time to start a new position?  The longer FRC survives now, you'd think it would indicate that they will go the distance...

ChpBstrd

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Re: buy bank stocks on the dip
« Reply #130 on: March 28, 2023, 08:22:11 AM »
I'm attracted to banks' low valuations, but repulsed by where we are in the economic cycle. Defaults are going up from here, against the backdrop of an asset base devalued by 475 basis points of interest rate hikes in 13 months. If lots of people start losing their jobs later this year, the level of deposits could fall, which from the bank's perspective is similar to a wave of demands for cash. That leads to more recognition of losses, which leads to worse ratios, which leads to the need for banks to pay ~5% interest to borrow from the Fed.

The Federal emergency loan program should eliminate the risk of further bank runs. I think it will, anyway. Yet I don't think most banks have positive equity right now, except for the fictitious values of "held to maturity" assets on their balance sheets. When banks are typically leveraged 15:1 or 20:1 or so, it doesn't take a large loss to flip equity negative.

The case for buying banks (or insurance companies, or mREITs) right now is the expectation that when things turn around, they'll have solid earnings and re-flation of their asset base due to falling interest rates. The conundrum for bank bulls is how could we possibly get falling interest rates without the kind of recession that will drive up delinquencies and drive down deposits? It seems like the most unlikely combination of interest rate outcomes and economic outcomes is the one where the economy does well AND interest rates fall. All 3 other possibilities on that grid are bad for banks.

Even then, let's look at the happiest scenario - where rates fall and the economy does well (i.e. mild & short recession or no recession). I think it's implausible to expect the FFR to return to a 0.25% upper bound, but we might go from today's 5% to, let's say, 3% in an uber-optimistic view. For a bank that held an average duration of 8 years, these rate cuts would amount to a roughly 14% increase in the value of assets held across that timespan.

Of course an investor could get that return by investing in treasuries directly, rather than via bank shares or bonds, and avoid the risk of rising defaults. The reason to buy banks is that you'd get this tailwind PLUS the discounted future earnings of the bank (discounted at a lower rate too!). So when we pay for bank equity right now, what we're actually paying for is the option value of the bank in the soft landing scenario. In any other scenario, share prices and fundamentals will be cheaper in the future and today's deal is a value trap.

The more likely scenarios involve higher default rates for cars, mortgages, and corporate bonds and leveraged loans. Default rates are already increasing in some of these areas.

Bank stocks could be seen as a leveraged option on treasury rates going down, but that would be an over-simplification because defaults will wipe out much of their value in most scenarios where rates go down.

Bulls are reasoning that most banks will survive the next recession. Regardless of which scenario unfolds, the question is will they become stuck in a zombie state, unable to make risky loans, all crowding into the same handful of safe haven assets with minimal returns, and waiting years for old "held to maturity" bonds to mature off their books? The banks which dilute their stockholders with new equity offerings might be the only ones to escape such a cycle. 

Aren't bank stocks supposed to do well in a rising interest rate environment? Increased net interest margin and all that.

I understand that 'this time is different' and the current problems occurred precisely because of rising interest rates, but normally shouldn't banks do well in a rising interest rate environment? Therefore, shouldn't banks who managed bond maturity risk properly still do well?
Banks do well in an environment where short-term deposits command much lower yields than longer-term loans. Banks essentially milk that difference in interest rates. They thrive on a steep yield curve.

Banks are in trouble today because their short-term deposits and debts (i.e. your checking account and CDs) are now requiring higher interest rates than the banks can earn from loans or treasuries. In the recent past, they were being squeezed because the difference between short term and long term rates was small, and so people said higher rates would help them by expanding the yield curve. But now the yield curve is inverted.


chasesfish

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Re: buy bank stocks on the dip
« Reply #131 on: March 28, 2023, 09:05:27 AM »
Venturing in here...a lot of good discussion.

I own about $8k in FRC-N.   Not going to size up the position anymore, but I still like the odds.   It looks like the panic driven market moves are over, now it's just a wait and see game.  Every day they survive, the probability the prefs pay out goes up.   If the 5yr is below 4% at the end of this week, the quarterly marks to their equity improve.   It's banking, each month they receive payments on a bunch of low rate loans and loan that money out at higher rates.   Personally I hope some people I know at HBAN go and acquire them.  Issue a bunch of stock, take the marks, know it's painful for a few years, but cement their status as a survivor.   They have $40bil more in deposits than loans and can get to work.   As of Q4, they had almost $150bil in deposits at a total cost of 0.64% compared to a securities book yielding 3.26%. 


Everything @ChpBstrd said has merit.  The question is how hard will the recession be and will be cost the banks more than the 1% already set away against loan loss reserves.   Remember typical commercial bank loans have payment, collateral, and guarantors.   If 10-15% become problems, that doesn't mean the ultimate loss is 10%

Those who are bearish on the banks should be bearish more for problem loans than rising interest rates.   Problem loans in the middle of a potential margin squeeze hurts.

Those who are bullish on the banks should think the following:

- Yields rise on both the loan / securities book and the deposit book.
- The deposit book should have 30-50% that doesn't rise with rates
- The loan book's yield improves every month.  Payments are received on low rate loans, capital is redeployed into higher rate loans.
- Whether it's HTM / AFS securities or loans, the yield is the yield.

Will margins squeeze?  In the industry, yes.   For all players?  Not so quickly.  MTB took their medicine over the last few years and stayed short duration on everything in their book.  They also have a strong deposit franchise, so loans are repricing faster than deposits.  BofA's core business is doing the same, but they have the hangover of many mortgage backed securities.

My insider view / knowledge is most of the garbage CRE loans are outside of the banking industry.  CBD office properties and high risk bridge loans just aren't a fit for the banks.  Most of that stuff has some combination of being regulated out and the higher ups in every bank's credit department are 45+ years old and lived through a down cycle.   Auto lending is mostly fine, fast amortizations, collateral holding it's value, and quick repossessions.   I also don't think the traditional mortgages will have too much trouble, the few exotics out there are mostly off the bank's balance sheet.   Credit card delinquencies may suck, but the margin on this business is so wide it can absorb a lot of losses.   I don't love a straight credit card bank like COF, but overall I don't see it being as painful.

There's reasons to be bullish and bearish.   We don't have to agree or even invest in the sector.  So much of this is assigning probabilities to each


ChpBstrd

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Re: buy bank stocks on the dip
« Reply #132 on: March 28, 2023, 10:30:25 AM »
I’ve been thinking about how today’s story is about the banks which got hit by interest rate / duration risk, while tomorrow’s story will be about the banks hit by credit risk.

If the banks in trouble today are in trouble because they have assets concentrated in long duration treasuries, then maybe they’ll be more likely to survive the uptick in loan defaults because they’re sitting in treasuries instead of holding loans. They’ll also gain to the extent rates are cut during the next recession. So maybe the bank stocks that are cheap today will hold up in the future, and the bank stocks that are expensive today will be whacked by defaults?

I’m not sure how to screen bank stocks based on this thesis though, other than to examine balance sheets one at a time and scratch out the ratios for comparison. Even that would not be easy due to differences in nomenclature across companies.

Thoughts on this thesis and how to screen for it?

I think the interest rate hikes have peaked or almost peaked, and my base case is for a recession starting later this year or in early 2024. Thus I’d rather own a bank loaded with treasuries than a bank loaded with loans.

reeshau

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Re: buy bank stocks on the dip
« Reply #133 on: March 28, 2023, 11:00:10 AM »
The case for buying banks (or insurance companies, or mREITs) right now is the expectation that when things turn around, they'll have solid earnings and re-flation of their asset base due to falling interest rates. The conundrum for bank bulls is how could we possibly get falling interest rates without the kind of recession that will drive up delinquencies and drive down deposits? It seems like the most unlikely combination of interest rate outcomes and economic outcomes is the one where the economy does well AND interest rates fall. All 3 other possibilities on that grid are bad for banks.

The scenario you lay out could happen.  It's one of several possibilities.  The issue at hand is handicapping the probability, and betting accordingly.

But I do think there is a problem in convoluting "interest rates."  The 10 year Treasury has already fallen 1/2%, just from the panic because there *might be* something worse.  That will be the benchmark (one of the benchmarks) that banks' investments will be judged against by depositors, and which is the basis of the unrealized losses.  So, it's already happened to a degree that has even woken up the housing market again.  That's the razor's edge to judge, in this half-hot / half-cold economy.

My personal judgment, in having bought WAL, is the case that "things are never as good or as bad as they seem."  In looking at equity, SVB was a clear outlier.  Many banks could absorb losses, should they have to sell investments to fund redemptions.  Even without the favorable Fed offering now available.  If equity eroded enough to start to affect a significant amount of regional banks, then BAC better look out.  Maybe they wouldn't be drawn in, because they are a net receiver of deposits fleeing regionals.  But a downside scenario that's bad enough to become widespread will also start to hit bigger fish, and demand more support from the government.

The below graph is from a JP Morgan assessment of the situation, released the weekend after SVB collapsed.
« Last Edit: March 28, 2023, 11:02:20 AM by reeshau »

chasesfish

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Re: buy bank stocks on the dip
« Reply #134 on: March 28, 2023, 11:22:07 AM »
I think your answer is in that chart, just by MTB.

20% or so of their balance sheet is in cash / securities and they didn't take any interest rate risk on the way up.

Disclaimer:  I somewhat know the (newish) CFO there, incredibly smart guy.  One of the three c-suite guys at BB&T before the Trust merger that knew what they were doing.  He exited out of the TFC clusterf@#$ then appeared at MTB a few months later.
« Last Edit: March 28, 2023, 11:24:29 AM by chasesfish »

Mr Mark

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Re: buy bank stocks on the dip
« Reply #135 on: March 28, 2023, 12:09:42 PM »
I think your answer is in that chart, just by MTB.

20% or so of their balance sheet is in cash / securities and they didn't take any interest rate risk on the way up.

Disclaimer:  I somewhat know the (newish) CFO there, incredibly smart guy.  One of the three c-suite guys at BB&T before the Trust merger that knew what they were doing.  He exited out of the TFC clusterf@#$ then appeared at MTB a few months later.

Yep. Agree Chasesfish. Let's see. Bought the dip this afternoon. In at 118.65.

ChpBstrd

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Re: buy bank stocks on the dip
« Reply #136 on: March 28, 2023, 12:48:45 PM »
I think your answer is in that chart, just by MTB.

20% or so of their balance sheet is in cash / securities and they didn't take any interest rate risk on the way up.

But if MTB did not suffer significant losses in long-duration treasuries, that means their asset structure is concentrated in the sorts of loans that default in recessions, right? Their assets have gone up over 67% in 3 years - mergers I assume?

chasesfish

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Re: buy bank stocks on the dip
« Reply #137 on: March 28, 2023, 01:53:53 PM »
Acquired People's Bank, transaction closed in 2022, about 40% of the size of M&T.   Not quite a merger of equals, but close.   You can look at their loan book in the Q4 press release, go to the Consolidated Balance Sheet 5Q trend, you'll have a hard time finding a more balanced loan book.   

Good company, fair price, the only real knock to them is the Northeast is generally a slower growing part of the country.



ChpBstrd

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Re: buy bank stocks on the dip
« Reply #138 on: March 29, 2023, 10:32:00 AM »
@chasesfish I found something interesting and would like your take on it (others feel free to chime in too).

BankUnited (BKU) seems to have a weird policy of keeping most of their bond assets in a "securities for sale" account, and they've been doing so for years. Out of 9.775B in "total invest. securities" only 10M of those are in the "securities held" account. Of course, most banks put the majority of their bonds in a "held to maturity" account.

I'm assuming "securities for sale" means the same as the more commonly used "available for sale" nomenclature, and that "securities held" means the same as the more commonly used "held to maturity" accounting terminology. Thus, I interpret this unusual behavior of putting almost all assets in a for sale account as meaning BKU has been applying mark-to-market writedowns each quarter on the vast majority of their securities.

This would mean there is a lot more investor transparency and a lot lower risk of accidentally buying negative equity. It would also mean their superficial metrics look a lot worse compared to peers who keep most of their securities in a "held to maturity" account and haven't yet written them down. Sure enough, their total securities portfolio declined a little over 3% in 2022 and that decline in the securities portfolio is reflected in falling equity on the balance sheet.

Aside from BKU's exposure to the loans they've made, it would seem the value of common shares in a liquidation would be roughly equal to book value ($32.19 in December 2022, compared to a price today of $22.82).

That conclusion rests on a whole stack of assumptions, of course. Furthermore, I'm not at all bullish on the company's loan portfolio, which is 2.5X the size of their securities portfolio. However it seems like BKU has simplified the problem for us by exposing the market value of their securities and taking losses as they occurred.

Now all we need to do is apply reasonable loan loss estimates to the loan portfolio to see if there is any equity remaining in a recession. This is tricky because BKU is heavily exposed to commercial real estate (the financial media bugabear of the moment), mortgages, and CLO's, which can be volatile and illiquid. BKU increased their "loan loss allowances" by $22M to $148M by December 2022, but I'm thinking 2023 will probably see another $150M in loss allowances (which would be $43M more than they set aside in December 2020). That would merely dent the balance sheet's total equity. Unless there is a 2008-grade RE meltdown, I think the bank is a survivor.

Which of the above assumptions are off?
Could the bank's CFO just decide to buck bank accounting convention and mark-to-market on a routine basis for the sake of being unusually conservative, or does this decision reflect the riskiness of the bank's securities?
Is my math about there being plenty of equity left after any plausible losses reasonable?
« Last Edit: March 30, 2023, 07:02:27 AM by ChpBstrd »

chasesfish

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Re: buy bank stocks on the dip
« Reply #139 on: March 29, 2023, 11:40:39 AM »
I think it's more of a size thing.   The smaller the bank, the less likely they are to use the Held To Maturity bucket.   It is a more conservative and cleaner form of accounting to just call everything available for sale.   Looks like they stayed mostly short on the maturities too.

I'd have to dig into their valuation to have much more of an opinion, good commercial real estate lender in Florida. 


reeshau

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Re: buy bank stocks on the dip
« Reply #140 on: March 29, 2023, 02:43:04 PM »
You can game it the other way, too.

SoFi had been roundly criticized up until March because they have their entire portfolio in held for sale.  The criticism came because they have a miniscule allowance for doubtful accounts, implying that they made their choice to minimize the need for it.  They just started being a bank a year ago, so they are building up that allowance, rather than turning it into a one-time earnings hit.  And, they have 10 years' history of indeed selling everything they originated, as a non-bank entity.

Before I would award BankUnited a trophy, I'd see how their allowance for doubtful accounts stacks up.

bwall

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Re: buy bank stocks on the dip
« Reply #141 on: March 30, 2023, 07:34:54 AM »
I own about $8k in FRC-N.   Not going to size up the position anymore, but I still like the odds.   It looks like the panic driven market moves are over, now it's just a wait and see game.  Every day they survive, the probability the prefs pay out goes up.   If the 5yr is below 4% at the end of this week, the quarterly marks to their equity improve. It's banking, each month they receive payments on a bunch of low rate loans and loan that money out at higher rates.

The bolded sentence you've written a couple of times now in this thread and, after seeing it now a couple of times, the message finally sunk in. That, and the dropping price of FRC preferred convinced me it's a good time to open a speculative position in FRC preferred stock.

I'm convinced that FRC won't go bust. It's the frontline and the regulators know that. They will do everything they can to stop the run, and that means supporting FRC.

Your last sentence is also very important. It's the basis of how banking works and that hasn't changed.

ChpBstrd

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Re: buy bank stocks on the dip
« Reply #142 on: March 30, 2023, 09:04:06 AM »
I own about $8k in FRC-N.   Not going to size up the position anymore, but I still like the odds.   It looks like the panic driven market moves are over, now it's just a wait and see game.  Every day they survive, the probability the prefs pay out goes up.   If the 5yr is below 4% at the end of this week, the quarterly marks to their equity improve. It's banking, each month they receive payments on a bunch of low rate loans and loan that money out at higher rates.

The bolded sentence you've written a couple of times now in this thread and, after seeing it now a couple of times, the message finally sunk in. That, and the dropping price of FRC preferred convinced me it's a good time to open a speculative position in FRC preferred stock.

I'm convinced that FRC won't go bust. It's the frontline and the regulators know that. They will do everything they can to stop the run, and that means supporting FRC.

Your last sentence is also very important. It's the basis of how banking works and that hasn't changed.

My concern is that FRC has nothing but non-cumulative preferreds. Thus, in this time of need and during the recession ahead, it makes logical sense for them (or their management successors) to cut common and preferred dividends for at least a year or two. Doing that makes more sense than raising cash most other ways, and is a reasonable response to the risk of an FDIC takeover and loss of all equity. The whole point of non-cumulative preferreds is to give management options to cut expenses during an emergency, and I'd say FRC is experiencing an emergency. Even if they can withstand a bank run by borrowing from the Fed at 5%, they still need to raise capital to eventually fill the hole in their balance sheet.

The time to buy might be after this possible announcement is made, and after a lot of people who bought the dividend lose their nerve. The dividend cut would make the investment safer and cheaper at the same time!

And if that never happens there are plenty of preferred stocks not teetering on the edge of insolvency and also paying out 7-8%, like MAA-I, ET-D, TRTN-B, NYCB-A or U, OZKAB, and RF-B. In a risk-adjusted sense, these may be more attractive than a company run by known-reckless managers who won't cut dividends to save the bank.

bwall

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Re: buy bank stocks on the dip
« Reply #143 on: March 30, 2023, 11:14:51 AM »
Good points, @ChpBstrd and all are worth considering.

Some things I'd note:

I believe FRC has already suspended/cut their common stock dividend to zero, fwiw.

I believe that the preferred stock dividend hasn't been cut (yet). Ex-dividend date varies, I guess, but the preferreds I've looked at all had ex-dividend dates in about 9-10 months time. Plenty of time for them to cut (or keep) the dividend still. I'm not sure what general corporate policy is in this regard.

The preferred stock all have yields of around 20% now (if the dividend isn't cut). Unfortunately, I couldn't find any cumulative preferred--that'd be the one to own.

I guess it's a matter of perception or point of view, but I'm not sure that FRC had reckless managers. They did cater to the same demographic as SVB and that's what's got them in this pickle now, IMHO. I guess that's why I'm so convinced they won't go under--I believe their management is/was sound. The proof is in the pudding, though.

Here's an article written that displays why I believe FRC will stand:

https://www.bloomberg.com/news/articles/2023-03-29/first-republic-s-frc-rich-vocal-clients-take-time-to-consider-moving-money?leadSource=uverify%20wall

It's a puff piece, to be sure, but at the end of the day, it still sums up why clients love First Republic Bank. People may move their money to a TBTF bank, but after awhile..... I believe they'll return to FRC. These are very high net worth individuals who are used to calling a branch, having a person who recognizes their voice answer the phone and get them whatever it is they need, immediately. Or, they can call a TBTF toll free number and go through the automated phone tree system for five minutes before a random person who may or may not be well trained answers the phone.

daverobev

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Re: buy bank stocks on the dip
« Reply #144 on: March 30, 2023, 11:35:59 AM »
I believe that the preferred stock dividend hasn't been cut (yet). Ex-dividend date varies, I guess, but the preferreds I've looked at all had ex-dividend dates in about 9-10 months time. Plenty of time for them to cut (or keep) the dividend still. I'm not sure what general corporate policy is in this regard.

They pay quarterly like normal I believe

https://www.morningstar.com/stocks/xnys/frc-pn/dividends

https://www.morningstar.com/stocks/xnys/frc-pj/dividends

No suspension announced yet.

chasesfish

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Re: buy bank stocks on the dip
« Reply #145 on: March 30, 2023, 11:56:43 AM »
I'm not in the FRC pref for the dividend.  If that's what you're looking for, take the 7%+ in names that can/will still pay.

This is simply the bet of the prefs going to $19+ if/when another bank swallows FRC.

3.67% 5yr right now vs. 4% at the end of last quarter.

Every day they make it....more payments received on low rate loans and new loans being made at market rates. 


bwall

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Re: buy bank stocks on the dip
« Reply #146 on: March 30, 2023, 12:10:19 PM »
I believe that the preferred stock dividend hasn't been cut (yet). Ex-dividend date varies, I guess, but the preferreds I've looked at all had ex-dividend dates in about 9-10 months time. Plenty of time for them to cut (or keep) the dividend still. I'm not sure what general corporate policy is in this regard.

They pay quarterly like normal I believe

https://www.morningstar.com/stocks/xnys/frc-pn/dividends

https://www.morningstar.com/stocks/xnys/frc-pj/dividends

No suspension announced yet.

Thanks! No idea what I was looking at.  ¯\_(ツ)_/¯

chasesfish

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Re: buy bank stocks on the dip
« Reply #147 on: March 30, 2023, 02:39:59 PM »
We should know early April if they announce or suspend the preferred dividend.   I expect a suspension, but will be pleasantly surprised if not

bwall

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Re: buy bank stocks on the dip
« Reply #148 on: March 31, 2023, 10:09:21 AM »
We should know early April if they announce or suspend the preferred dividend.   I expect a suspension, but will be pleasantly surprised if not

How do banks/bankers think in regards to suspending the dividend on a preferred stock? Do they think:

A) "OMG! The market will freak out because they think we can't afford to pay the preferred dividend!"

B) "OMG! The market will freak out because they think we're wasting money that we don't have on a dividend we can't afford!"

C) "OMG! Who cares! The bank has to cut costs, preserve capital and this is a great way to do it. Live to fight again another day."

D) Something else?

ChpBstrd

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Re: buy bank stocks on the dip
« Reply #149 on: March 31, 2023, 02:58:05 PM »
I'm not in the FRC pref for the dividend.  If that's what you're looking for, take the 7%+ in names that can/will still pay.

This is simply the bet of the prefs going to $19+ if/when another bank swallows FRC.

So it's kind of a bet with multiple payout conditions:

a) FRC survives and limps along, resuming the preferred dividend in 2 years or so.
b) Another bank acquires FRC, and the preferreds are called or converted as part of the acquisition, or they just become a lot safer.
c) Long term interest rates fall, restoring FRC's portfolio, so FRC becomes a lot safer.

And the following loss conditions:

d) The FDIC takes over the bank and liquidates it.
e) Long term interest rates rise, making FRC riskier.
f) FRC's loan portfolio, which dwarfs the size of its damaged securities portfolio, experiences heightened defaults OR markets determine loan defaults will finish off the weakened bank and bid down the stocks.
g) A "voluntary" liquidation like Silvergate.

After breaking it down this way, we can guess the odds of each condition. I'd be curious to hear what others come up with:

a) 75% Thanks to the lending-at-par program.
b) 5% I don't think most other banks are in an acquisition mood. Most are playing defense.
c) 80% A recession is on the way, so long-term rates are going down. Unfortunately this same factor pushes up a risk for f.
d) 15% the lending facility has all but eliminated this possibility
e) 10% The Fed has a reputation of rate hikes right up until the point of catastrophe.
f) 80% the question is how much.
g) 5% If it made sense for Silvergate, we should consider it for FRC, especially if market perceptions of risk make the pieces worth more than the whole.